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Electronic Arts Reports Strong Q1 FY21 Financial Results

Yes, this probably is a very boring article, but interesting to see how much money a major developer makes.

(NASDAQ: EA) today announced preliminary financial results for its first fiscal quarter ended June 30, 2020.

“This was an extraordinary quarter, and we’re deeply proud of everything our teams at Electronic Arts are doing for our players and communities,” said CEO Andrew Wilson. “We launched new games, deeply engaged players in our live services, and welcomed tens of millions of new players to our network. It was an unprecedented first quarter of growth in our business, and we will continue building on that strength with more innovative experiences, more groundbreaking content, and more ways to connect with friends and play great games throughout the year.”

“Player engagement through the first quarter was exceptionally high, and well above our forecast,” said COO and CFO Blake Jorgensen. “Our Stay Home, Play Together initiatives have been a strong tailwind for the business, as players look for safe and social entertainment in these difficult times. We are focused on delivering high quality titles for our players, combined with our incredible ongoing live services and increasing reach across platforms and geographies which should continue to expand our business over time.”

News and ongoing updates regarding EA and its games are available on EA’s blog at www.ea.com/news.

Selected Operating Highlights and Metrics

  • Net bookings* for the trailing twelve months was $5.980 billion, up 17% year-over-year.
  • Launched Command & ConquerTM Remastered and Burnout ParadiseTM Remastered during the quarter.
  • During the quarter, EA delivered over 30 new content updates, including two major game expansions, and more than 50 mobile updates.
  • Launched nearly 30 titles on the Steam platform during the quarter.
  • During the quarter, Apex LegendsTM launched Season 5 with engagement reaching its highest levels since Season 1.
  • During the quarter, player acquisition for FIFA was up more than 100% year-over-year and up nearly 140% year-over-year in Madden NFL.
  • Life to date, The Sims 4TM has more than 30 million players across all platforms; daily, weekly, and monthly active player totals reached record highs for a first quarter.

* Net bookings is defined as the net amount of products and services sold digitally or sold-in physically in the period. Net bookings is calculated by adding total net revenue to the change in deferred net revenue for online-enabled games.

Selected Financial Highlights and Metrics

  • Net cash provided by operating activities was $378 million for the quarter and a record $2.017 billion for the trailing twelve months.
  • EA repurchased approximately 747,000 shares for $78 million during the quarter, completing its $2.4 billion, two-year repurchase program.

Quarterly Financial Highlights

Three Months Ended
June 30,
20202019
(in $ millions, except per share amounts)
Full game359262
Live services and other1,100947
Total net revenue1,4591,209
 
Net income3651,421*
Diluted earnings per share1.254.75*
 
Operating cash flow378158
 
Value of shares repurchased78305
Number of shares repurchased0.73.2
*Includes the impact of one-time tax benefits recognized during the fiscal quarter.

The following GAAP-based financial data and tax rate of 18% was used internally by company management to adjust its GAAP results in order to assess EA’s operating results:

Three Months Ended June 30, 2020
GAAP-Based Financial Data
(in $ millions)Statement
of
Operations
Acquisition-
related
expenses
Change in
deferred
net revenue
(online-
enabled
games)
Stock-based
compensation
Total net revenue1,459  (69) 
Cost of revenue288   (1)
Gross profit1,171  (69)1 
Total operating expenses700 (5) (101)
Operating income471 5 (69)102 
Interest and other income, net(3)   
Income before provision for (benefit from) income taxes468 5 (69)102 
Number of shares used in computation:
Diluted292 

For more information about the nature of the GAAP-based financial data, please refer to EA’s Form 10-K for the fiscal year ended March 31, 2020.

Financial Highlights for the Trailing Twelve Months

Twelve Months Ended
June 30,
20202019
(in $ millions)
Full game1,9841,784
Live services and other3,8033,238
Total net revenue5,7875,022
 
Net income1,983*2,147*
 
Operating cash flow2,0171,585
 
Value of shares repurchased9801,197
Number of shares repurchased9.811.9
*Includes the impact of one-time tax benefits recognized during the trailing twelve months.

The following GAAP-based financial data and tax rate of 18% was used internally by company management to adjust its GAAP results in order to assess EA’s operating results:

Twelve Months Ended June 30, 2020
GAAP-Based Financial Data
(in $ millions)Statement
of
Operations
Acquisition-
related
expenses
Change in
deferred net
revenue
(online-
enabled
games)
Stock-based
compensation
Total net revenue5,787 193 
Cost of revenue1,470(10)(4)
Gross profit4,31710 1934 
Total operating expenses2,816(26)(372)
Operating income1,50136 193376 
Interest and other income, net39  
Income before provision for income taxes1,54036 193376 

For more information about the nature of the GAAP-based financial data, please refer to EA’s Form 10-K for the fiscal year ended March 31, 2020.

Operating Metric

The following is a calculation of our total net bookings for the periods presented:

Three Months EndedTwelve Months Ended
June 30,June 30,
20202019*2020*2019*
(in $ millions)
Total net revenue1,459 1,209 5,787 5,022 
Change in deferred net revenue (online-enabled games)(69)(427)19394
Net bookings1,390 782 5,980 5,116 
*At the beginning of FY21, EA changed the way in which it reports net bookings. Periods prior to the first quarter of FY21 have been recast for comparability to align with these changes. For more information, please see the Financial Reporting FAQ on our IR website.

Business Outlook as of July 30, 2020

The following forward-looking statements reflect expectations as of July 30, 2020. Electronic Arts assumes no obligation to update these statements. Results may be materially different and are affected by many factors detailed in this release and in EA’s annual and quarterly SEC filings.

Fiscal Year 2021 Expectations – Ending March 31, 2021

Financial metrics:

  • Net revenue is expected to be approximately $5.625 billion.
    • Change in deferred net revenue (online-enabled games) is expected to be approximately $325 million.
  • Net income is expected to be approximately $869 million.
  • Diluted earnings per share is expected to be approximately $2.97.
  • Operating cash flow is expected to be approximately $1.850 billion.
  • The Company estimates a share count of 293 million for purposes of calculating fiscal year 2021 diluted earnings per share.

Operational metric:

  • Net bookings is expected to be approximately $5.950 billion.

In addition, the following outlook for GAAP-based financial data and a long-term tax rate of 18% are used internally by EA to adjust our GAAP expectations to assess EA’s operating results and plan for future periods:

Twelve Months Ending March 31, 2021
GAAP-Based Financial Data
GAAP
Guidance
Acquisition-
related
expenses
Change in
deferred net
revenue (online-
enabled games)
Stock-based
compensation
(in $ millions)
Total net revenue5,625 325 
Cost of revenue1,483 (1)
Operating expense3,024(20)(444)
Income before provision for (benefit from) income taxes1,08620 325445 
Net income869
Number of shares used in computation:
Diluted shares293

Second Quarter Fiscal Year 2021 Expectations – Ending September 30, 2020

Financial metrics:

  • Net revenue is expected to be approximately $1.125 billion.
    • Change in deferred net revenue (online-enabled games) is expected to be approximately $(250) million.
  • Net income is expected to be approximately $61 million.
  • Diluted earnings per share is expected to be approximately $0.21.
  • The Company estimates a share count of 293 million for purposes of calculating second quarter fiscal year 2021 diluted earnings per share. If the Company reports a net loss instead of net income, a basic share count for calculating earnings per share would be 289 million shares.

Operational metric:

  • Net bookings is expected to be approximately $875 million.

As previously announced, Madden NFL 21 will launch on August 28, 2020 and FIFA 21 will launch on October 9, 2020, moving FIFA 21 out of the second fiscal quarter and into the beginning of the third fiscal quarter. These launch dates affect the original estimated phasing of net revenue and net bookings as well as the year-over-year quarterly comparison. Refer to the slide presentation on EA’s IR website for additional details.

In addition, the following outlook for GAAP-based financial data and a long-term tax rate of 18% are used internally by EA to adjust our GAAP expectations to assess EA’s operating results and plan for future periods:

Three Months Ending September 30, 2020
GAAP-Based Financial Data
GAAP
Guidance
Acquisition-
related
expenses
Change in
deferred net
revenue (online-
enabled games)
Stock-based
compensation
(in $ millions)
Total net revenue1,125 (250) 
Cost of revenue280   
Operating expense755(5) (110)
Income (loss) before provision for (benefit from) income taxes835 (250)110 
Net income (loss)61
Number of shares used in computation:
Diluted shares293

For more information about the nature of the GAAP-based financial data, please refer to EA’s Form 10-K for the fiscal year ended March 31, 2020.

Conference Call and Supporting Documents

Electronic Arts will host a conference call on July 30, 2020 at 2:00 pm PT (5:00 pm ET) to review its results for the first fiscal quarter ended June 30, 2020 and its outlook for the future. During the course of the call, Electronic Arts may disclose material developments affecting its business and/or financial performance. Listeners may access the conference call live through the following dial-in number (866) 324-3683 (domestic) or (509) 844-0959 (international), using the conference code 5955287 or via webcast at EA’s IR Website at http://ir.ea.com.

EA has posted a slide presentation with a financial model of EA’s historical results and guidance on EA’s IR Website. EA will also post the prepared remarks and a transcript from the conference call on EA’s IR Website.

A dial-in replay of the conference call will be available until August 13, 2020 at 855-859-2056 (domestic) or 404-537-3406 (international) using pin code 5955287. An audio webcast replay of the conference call will be available for one year on EA’s IR Website.

Forward-Looking Statements

Some statements set forth in this release, including the information relating to EA’s fiscal 2021 expectations under the heading “Business Outlook as of July 30, 2020,” and other information regarding EA’s fiscal 2021 expectations contain forward-looking statements that are subject to change. Statements including words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “plan,” “predict,” “seek,” “goal,” “will,” “may,” “likely,” “should,” “could” (and the negative of any of these terms), “future” and similar expressions also identify forward-looking statements. These forward-looking statements are not guarantees of future performance and reflect management’s current expectations. Our actual results could differ materially from those discussed in the forward-looking statements.

Some of the factors which could cause the Company’s results to differ materially from its expectations include the following: the impact of the COVID-19 pandemic, sales of the Company’s products and services; the Company’s ability to develop and support digital products and services, including managing online security and privacy; outages of our products, services and technological infrastructure; the Company’s ability to manage expenses; the competition in the interactive entertainment industry; governmental regulations; the effectiveness of the Company’s sales and marketing programs; timely development and release of the Company’s products and services; the Company’s ability to realize the anticipated benefits of acquisitions; the consumer demand for, and the availability of an adequate supply of console hardware units; the Company’s ability to predict consumer preferences among competing platforms; the Company’s ability to develop and implement new technology; foreign currency exchange rate fluctuations; general economic conditions; changes in our tax rates or tax laws; and other factors described in Part I, Item 1A of Electronic Arts’ latest Annual Report on Form 10-K under the heading “Risk Factors”, as well as in other documents we have filed with the Securities and Exchange Commission.

These forward-looking statements are current as of July 30, 2020. Electronic Arts assumes no obligation to revise or update any forward-looking statement for any reason, except as required by law. In addition, the preliminary financial results set forth in this release are estimates based on information currently available to Electronic Arts.

While Electronic Arts believes these estimates are meaningful, they could differ from the actual amounts that Electronic Arts ultimately reports in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020. Electronic Arts assumes no obligation and does not intend to update these estimates prior to filing its Form 10-Q for the fiscal quarter ended June 30, 2020.

About Electronic Arts

Electronic Arts (NASDAQ: EA) is a global leader in digital interactive entertainment. The Company develops and delivers games, content and online services for Internet-connected consoles, mobile devices and personal computers.

In fiscal year 2020, EA posted GAAP net revenue of $5.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality brands such as EA SPORTS™ FIFA, Battlefield™, Apex Legends™, The Sims™, Madden NFL, Need for Speed™, Titanfall™ and Plants vs. Zombies™. More information about EA is available at www.ea.com/news.

EA SPORTS, Command & Conquer, Burnout Paradise, Battlefield, Need for Speed, Apex Legends, The Sims and Plants vs. Zombies are trademarks of Electronic Arts Inc. John Madden, NFL and FIFA are the property of their respective owners and used with permission.

ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in $ millions, except per share data)
    
 Three Months Ended
 June 30,
 2020 2019
Net revenue1,459  1,209 
Cost of revenue288  187 
Gross profit1,171  1,022 
Operating expenses:   
Research and development438  381 
Marketing and sales121  110 
General and administrative136  110 
Acquisition-related contingent consideration  1 
Amortization of intangibles5  5 
Total operating expenses700  607 
Operating income471  415 
Interest and other income (expense), net(3) 21 
Income before provision for (benefit from) income taxes468  436 
Provision for (benefit from) income taxes103  (985)
Net income365  1,421 
Earnings per share   
Basic1.27  4.78 
Diluted1.25  4.75 
Number of shares used in computation   
Basic288  297 
Diluted292  299 

Results (in $ millions, except per share data)

The following table reports the variance of the actuals versus our guidance provided on May 5, 2020 for the three months ended June 30, 2020 plus a comparison to the actuals for the three months ended June 30, 2019.

 Three Months Ended June 30,
 2020   2020 2019
 Guidance Variance Actuals Actuals
Net revenue       
Net revenue1,220  239  1,459  1,209 
GAAP-based financial data       
Change in deferred net revenue (online-enabled games)1(220) 151  (69) (427)
Cost of revenue       
Cost of revenue210  78  288  187 
GAAP-based financial data       
Acquisition-related expenses      (2)
Stock-based compensation  (1) (1) (1)
Operating expenses       
Operating expenses635  65  700  607 
GAAP-based financial data       
Acquisition-related expenses(5)   (5) (6)
Stock-based compensation(90) (11) (101) (72)
Income before tax       
Income before tax374  94  468  436 
GAAP-based financial data       
Acquisition-related expenses5    5  8 
Change in deferred net revenue (online-enabled games)1(220) 151  (69) (427)
Stock-based compensation90  12  102  73 
Tax rate used for management reporting18%   18% 18%
Earnings per share       
Basic0.93  0.34  1.27  4.78 
Diluted0.93  0.32  1.25  4.75 
Number of shares       
Basic289  (1) 288  297 
Diluted291  1  292  299 
1The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.
 
In fiscal 2021, EA changed the way in which it reports net revenue. Periods prior to the first quarter of fiscal 2021 have been recast for comparability to align with these changes. For more information please see the Financial Reporting FAQ on our Investor Relations Website.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in $ millions)
    
 June 30, 2020 March 31, 20202
ASSETS   
Current assets:   
Cash and cash equivalents4,013  3,768 
Short-term investments1,947  1,967 
Receivables, net507  461 
Other current assets223  321 
Total current assets6,690  6,517 
Property and equipment, net450  449 
Goodwill1,889  1,885 
Acquisition-related intangibles, net48  53 
Deferred income taxes, net1,894  1,903 
Other assets313  305 
TOTAL ASSETS11,284  11,112 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable51  68 
Accrued and other current liabilities1,040  1,052 
Deferred net revenue (online-enabled games)878  945 
Senior notes, current, net599  599 
Total current liabilities2,568  2,664 
Senior notes, net397  397 
Income tax obligations312  373 
Deferred income taxes, net1  1 
Other liabilities224  216 
Total liabilities3,502  3,651 
    
Stockholders’ equity:   
Common stock3  3 
Retained earnings7,831  7,508 
Accumulated other comprehensive loss(52) (50)
Total stockholders’ equity7,782  7,461 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY11,284  11,112 
2Derived from audited consolidated financial statements.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in $ millions)
    
 Three Months Ended June 30,
 2020 2019
OPERATING ACTIVITIES   
Net income365  1,421 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization and accretion37  37 
Stock-based compensation102  73 
Change in assets and liabilities   
Receivables, net(44) 294 
Other assets44  24 
Accounts payable(3) (40)
Accrued and other liabilities(66) (56)
Deferred income taxes, net10  (1,174)
Deferred net revenue (online-enabled games)(67) (421)
Net cash provided by operating activities378  158 
INVESTING ACTIVITIES   
Capital expenditures(38) (45)
Proceeds from maturities and sales of short-term investments694  358 
Purchase of short-term investments(664) (1,263)
Net cash used in investing activities(8) (950)
FINANCING ACTIVITIES   
Proceeds from issuance of common stock3  3 
Cash paid to taxing authorities for shares withheld from employees(69) (51)
Repurchase and retirement of common stock(78) (305)
Payment of contingent consideration  (32)
Net cash used in financing activities(144) (385)
Effect of foreign exchange on cash and cash equivalents19  2 
Change in cash and cash equivalents245  (1,175)
Beginning cash and cash equivalents3,768  4,708 
Ending cash and cash equivalents4,013  3,533 
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in $ millions, except per share data)
            
 Q1 Q2 Q3 Q4 Q1 YOY %
 FY20 FY20 FY20 FY20 FY21 Change
Net revenue           
Net revenue1,209  1,348  1,593  1,387  1,459  21%
GAAP-based financial data           
Change in deferred net revenue (online-enabled games)1(427) (35) 428  (131) (69)  
Gross profit           
Gross profit1,022  943  1,085  1,118  1,171  15%
Gross profit (as a % of net revenue)85% 70% 68% 81% 80%  
GAAP-based financial data           
Acquisition-related expenses2  2  5  3     
Change in deferred net revenue (online-enabled games)1(427) (35) 428  (131) (69)  
Stock-based compensation1  1  1  1  1   
Operating income           
Operating income415  268  361  401  471  13%
Operating income (as a % of net revenue)34% 20% 23% 29% 32%  
GAAP-based financial data           
Acquisition-related expenses8  10  12  9  5   
Change in deferred net revenue (online-enabled games)1(427) (35) 428  (131) (69)  
Stock-based compensation73  92  91  91  102   
Net income           
Net income1,421  854  346  418  365  (74%)
Net income (as a % of net revenue)118% 63% 22% 30% 25%  
GAAP-based financial data           
Acquisition-related expenses8  10  12  9  5   
Change in deferred net revenue (online-enabled games)1(427) (35) 428  (131) (69)  
Stock-based compensation73  92  91  91  102   
Tax rate used for management reporting18% 18% 18% 18% 18%  
Diluted earnings per share4.75  2.89  1.18  1.43  1.25  (74%)
Number of diluted shares used in computation           
Basic297  295  292  290  288   
Diluted299  296  294  292  292   
1The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.
 
In fiscal 2021, EA changed the way in which it reports net revenue. Periods prior to the first quarter of fiscal 2021 have been recast for comparability to align with these changes. For more information please see the Financial Reporting FAQ on our Investor Relations Website.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in $ millions)
             
  Q1 Q2 Q3 Q4 Q1 YOY %
  FY20 FY20 FY20 FY20 FY21 Change
QUARTERLY NET REVENUE PRESENTATIONS            
Net revenue by composition            
Full game downloads 133  181  286  211  223  68%
Packaged goods 129  399  403  145  136  5%
Full game 262  580  689  356  359  37%
Live services and other 947  768  904  1,031  1,100  16%
Total net revenue 1,209  1,348  1,593  1,387  1,459  21%
Full game 22% 43% 43% 26% 25%  
Live services and other 78% 57% 57% 74% 75%  
Total net revenue % 100% 100% 100% 100% 100%  
GAAP-based financial data      
Full game downloads (57) (5) 31  (21) (5)  
Packaged goods (110) 62  60  (67) (67)  
Full game (167) 57  91  (88) (72)  
Live services and other (260) (92) 337  (43) 3   
Total change in deferred net revenue (online-enabled games) by composition1 (427) (35) 428  (131) (69)  
             
Net revenue by platform            
Console 760  923  1,163  928  932  23%
PC & Other 253  248  261  274  325  28%
Mobile 196  177  169  185  202  3%
Total net revenue 1,209  1,348  1,593  1,387  1,459  21%
GAAP-based financial data      
Console (344) 8  388  (143) (108)  
PC & Other (58) (32) 24  7  15   
Mobile (25) (11) 16  5  24   
Total change in deferred net revenue (online-enabled games) by platform1 (427) (35) 428  (131) (69)  
1The change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of cash flows does not necessarily equal the change in deferred net revenue (online-enabled games) in the unaudited condensed consolidated statements of operations primarily due to the impact of unrecognized gains/losses on cash flow hedges.
 
In fiscal 2021, EA changed the way in which it reports net revenue. Periods prior to the first quarter of fiscal 2021 have been recast for comparability to align with these changes. For more information please see the Financial Reporting FAQ on our Investor Relations Website.
ELECTRONIC ARTS INC. AND SUBSIDIARIES
Unaudited Supplemental Financial Information and Business Metrics
(in $ millions)
            
 Q1 Q2 Q3 Q4 Q1 YOY %
 FY20 FY20 FY20 FY20 FY21 Change
CASH FLOW DATA           
Operating cash flow158 37 1,104 498 378 139%
Operating cash flow – TTM1,585 1,748 1,898 1,797 2,017 27%
Capital expenditures45 27 28 40 38 (16%)
Capital expenditures – TTM132 128 135 140 133 1%
Repurchase and retirement of common stock305 306 305 291 78 (74%)
DEPRECIATION           
Depreciation expense30 30 29 31 31 3%
BALANCE SHEET DATA           
Cash and cash equivalents3,533 2,940 3,603 3,768 4,013  
Short-term investments1,654 1,943 1,999 1,967 1,947  
Cash and cash equivalents, and short-term investments5,187 4,883 5,602 5,735 5,960 15%
Receivables, net329 856 798 461 507 54%
STOCK-BASED COMPENSATION           
Cost of revenue1 1 1 1 1  
Research and development49 61 60 59 66  
Marketing and sales7 10 10 10 11  
General and administrative16 20 20 21 24  
Total stock-based compensation73 92 91 91 102  

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